Tenant Terminated Lease in Bad Faith

June 30, 2008

Facts: A tenant signed a 15-year lease agreement that included a provision allowing for termination of the lease within 60 days if, after any casualty, the repair and reconstruction costs of the leased space totaled or exceeded 35 percent of the total reconstruction costs.

Four years into the lease, two tornadoes damaged the tenant's space. After an assessment, the tenant and owner agreed that $1,960,067 would be the total reconstruction cost, 35 percent of which equals $686,023.

Facts: A tenant signed a 15-year lease agreement that included a provision allowing for termination of the lease within 60 days if, after any casualty, the repair and reconstruction costs of the leased space totaled or exceeded 35 percent of the total reconstruction costs.

Four years into the lease, two tornadoes damaged the tenant's space. After an assessment, the tenant and owner agreed that $1,960,067 would be the total reconstruction cost, 35 percent of which equals $686,023.

Shortly afterward, the tenant presented estimates for repair and reconstruction of its space that exceeded the 35 percent threshold, and then terminated its lease. The owner rejected the tenant's estimates and sued, claiming that the tenant had terminated the lease in bad faith.

Decision: An Illinois district court ruled in favor of the owner.

Reasoning: The court determined that the tenant had inflated its estimates, and noted that the motivation to terminate was fueled by fear of a competitor that had recently opened in the same area.

  • SWPLAZA III, LLC v. TSA Stores Inc, May 2008

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